Old Second Bancorp, Inc. Announces Third Quarter Net Income of $72.9 Million

 Old Second Bancorp, Inc. Announces Third Quarter Net Income of $72.9 Million

Reversal of valuation allowance against deferred tax assets resulted in a $70
million benefit Net income before taxes of $2.9 million for the quarter

Regulatory Consent Order (OCC) terminated

Loan loss reserve release reflects stabilized and improved credit quality

PR Newswire

AURORA, Ill., Oct. 23, 2013

AURORA, Ill., Oct. 23, 2013 /PRNewswire/ --Old Second Bancorp, Inc. (the
"Company" or "Old Second") (NASDAQ: OSBC), parent company of Old Second
National Bank (the "Bank"), today announced financial results for the third
quarter of 2013. The Company reported net income of $72.9 million after a
$70.0 million benefit from the reversal of the valuation allowance against
deferred tax assets. Income before taxes for the quarter, reflecting the
benefit of a $1.8 million reversal in loan loss reserve, totaled $2.9
million. These results compare to net income of $3.5 million in the second
quarter of this year and $120,000 in the third quarter of 2012. The Company's
net income available to common shareholders of $71.6 million, or $5.08 per
diluted share ($0.11 per share excluding the reversal of the valuation
allowance against deferred tax assets), for the quarter compared to net loss
available to common shareholders of $1.1 million or $(0.08) per diluted share,
in the third quarter of 2012.

The Company reported net income of $81.9 million for the first nine months of
2013 ($11.9 million income before taxes excluding the reversal of the
valuation allowance against the deferred tax assets), compared to a net loss
of $1.6 million in the same period of 2012. The Company's net income
available to common shareholders of $78.0 million, or $5.52 per diluted share
($0.56 per share excluding the reversal of the valuation allowance against the
deferred tax assets), for the first nine months of 2013 compared to a net loss
available to common shareholders of $5.3 million, or $(0.37) per diluted
share, in the first nine months of 2012.

Chairman Bill Skoglund said, "Results for the third quarter and for the first
nine months of 2013 reflect ongoing progress in our return to enduring
profitability. Improvements in overall real estate markets in our market
areas were offset by intense competition from other financial institutions and
low loan demand from our small business customers resulting in restrained
loan growth. Further, the move to a higher market interest rate environment
pressured our residential mortgage business in the same manner as seen
nationwide."

Mr. Skoglund continued, "Our momentum is building as our bankers solidify
existing relationships and add to pipelines with current and prospective
customers. Our organization becomes stronger as problems from past decisions
are resolved -- evidenced by the action taken in the third quarter to reverse
the reserve against our deferred tax assets and by this month's decision of
the Office of the Comptroller of Currency to terminate the Consent Order under
which we've been operating. Nonaccrual loans are down to $43.6 million from
$77.5 million at December 31, 2012 and $58.2 million at June 30, 2013.
Similarly, other real estate owned declined to $49.1 million from $72.4
million at year end 2012 and $59.5 million at June 30, 2013. Our mission
remains robust improvement in earnings per share from greater revenues in all
our products coupled with disciplined expense management."

2013 Financial Highlights/Overview

Operating Environment

  oLoan growth prospects reasonably improving. Overall loan growth goal not
    yet attained.
  oLoyal deposit customers and value added customer service maintains deposit
    base.
  oTroubled real estate owned and real estate markets stabilizing.
  oMarketable securities portfolio managed to utilize liquid funds in low
    interest rate environment.

Earnings

  oThird quarter income before taxes of $2.9 million compared to income
    before taxes of $120,000 in the third quarter of 2012. The increase was
    primarily due to the release of $1.8 million in loan loss reserves and
    reduced other real owned estate expenses.
  oNet income available to common shareholders of $71.6 million for the third
    quarter reflected the benefit of the reversal of the valuation allowance
    against the deferred tax assets.
  oIn 2013, income before taxes declined from $3.5 million in the second
    quarter to $2.9 million in the third quarter. This decline primarily
    resulted from a $1.6 million, or 56.3%, reduction in residential mortgage
    revenue, and reduced gains on securities sales from $745,000 in the second
    quarter to a  $7,000 loss in the third quarter.
  oThe tax-equivalent net interest margin was 3.25% during the third quarter
    of 2013 compared to 3.44% in the same quarter of 2012. The third quarter
    of 2013 margin was an increase of 18 basis points compared to the second
    quarter of 2013.
  oNoninterest income of $29.5 million was $1.7 million lower in the first
    nine months of 2013 compared to the same period of 2012, reflecting
    reduced residential mortgage revenue, service charges on deposits, and
    lease revenue from other real estate owned ("OREO").
  oNoninterest expenses of $65.2 million were 9.4% lower in the first nine
    months of 2013 than in the same period of 2012, reflecting overall expense
    control and reduced expenses in most categories. Notable reductions are
    found in OREO expenses (down $6.9 million year over year essentially on
    still elevated but improved valuation adjustment expense, general bank
    insurance and the partial accounting recovery of some legal fees paid on
    OREO.

Capital

                                             September 30,  June 30,  Percent
                                             2013           2013      Change
The Bank's leverage capital ratio            11.08%         10.40%    0.68%
The Bank's total risk-based capital ratio    17.08%         16.30%    0.78%
The Company's leverage capital ratio         7.11%          5.46%     1.65%
The Company's total risk-based capital ratio 15.15%         14.70%    0.45%
The Company's tangible common                3.33%          (0.18)%   3.51%
 equity to tangible assets

Asset Quality & Earning Assets

  oNonperforming loans declined $34.8 million (42.2%) during the nine months
    ending September 30, 2013 to $47.8 million, from $82.6 million as of
    December 31, 2012. Nonperforming loans declined primarily because of
    successful negotiations by our staff with guarantors and movement to OREO,
    as well as loans being upgraded to accruing status when the financial
    condition of borrowers improved.
  oOREO declined from $72.4 million at December 31, 2012, to $49.1 million at
    September 30, 2013. OREO dispositions totaling $30.9 million in the nine
    month period ending September 30, 2013 were somewhat offset by new OREO
    and improvements to existing OREO of $14.3 million. Valuation write-downs
    of properties held for sale reduced the reported total by $6.7 million
    with related expense recognized.
  oSecurities available-for-sale decreased $206.4 million during 2013 to
    $373.5 million from $579.9 million at December 31, 2012 with the third
    quarter reclassification of $258.1 million to the held-to-maturity
    category. In all prior periods, all securities were held as available for
    sale. At $269.0 million (72.0% of the September 30, 2013
    available-for-sale portfolio), of asset-backed securities were the largest
    component of the available-for-sale portfolio and total securities
    holdings as of September 30, 2013. The Company's asset-backed securities
    were heavily oriented to those backed by student loan debt guaranteed by
    the U.S. Department of Education.

Non-GAAP Presentations: Management has traditionally disclosed certain
non-GAAP ratios to evaluate and measure the Company's performance, including a
net interest margin calculation. The net interest margin is calculated by
dividing net interest income on a tax equivalent basis by average earning
assets for the period. Management believes this measure provides investors
with information regarding balance sheet profitability. Management also
presents an efficiency ratio that is non-GAAP. The efficiency ratio is
calculated by dividing adjusted noninterest expense by the sum of net interest
income on a tax equivalent basis and adjusted noninterest income. Management
believes this measure provides investors with information regarding the
Company's operating efficiency and how management evaluates performance
internally. Consistent with industry practice, management also disclosed the
tangible common equity to tangible assets and the Tier 1 common equity to risk
weighted assets in the discussion immediately above and in the following
tables. The tables provide a reconciliation of each non-GAAP measure to the
most comparable GAAP equivalent.

Forward Looking Statements: This report may contain forward-looking
statements. Forward looking statements are identifiable by the inclusion of
such qualifications as expects, intends, believes, may, likely or other
indications that the particular statements are not based upon facts but are
rather based upon the Company's beliefs as of the date of this release.
Actual events and results may differ significantly from those described in
such forward-looking statements, due to changes in the economy, interest rates
or other factors. Additionally, all statements in this document, including
forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new
information or future events. For additional information concerning the
Company and its business, including other factors that could materially affect
the Company's financial results or cause actual results to differ
substantially from those discussed or implied in forward looking statements
contained in this release, please review our filings with the Securities and
Exchange Commission.

SOURCE Old Second Bancorp, Inc.

Contact: J. Douglas Cheatham, Chief Financial Officer, (630) 906-5484
 
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